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  • August 15th, 2014

Spot LNG prices rebound as buyers

Spot prices of LNG have begun to rebound with the Platts Japan Korea Marker for September delivery gaining $0.30/MMBtu over two days, rising from $10.525/MMBtu on August 7 to close at $10.825/MMBtu on Monday.

This is a reversal of the downward trend seen in the last five months when the JKM lost more than 47% of its value since peaking at a historical high of $20.20/MMBtu for March-delivery cargoes on February 14.

With spot prices now considered to have hit the bottom, numerous portfolio sellers — in addition to buyers in Asia, India, Europe and South America — are beginning to return to the market to buy ahead of higher prices expected in October and November.
The rise in price of prompt cargoes was largely being driven by the expectation of higher prices in the winter, sources explained.

Portfolio sellers in particular are looking to pick up cargoes to fulfill term contract and short positions later as spot prices for October, November and December are expected to be below that for term contracts linked to Japan Customs Cleared crude oil, currently priced at $16.44/MMBtu for May-delivery cargoes.

Interest is also picking up from end-users. While inventories across much of northeast Asia remain above average for the time of the year following the warmer-than-anticipated winter and a moderate start to the summer, the recent heat wave in Japan that pushed temperatures to above 35 degrees C across several regions, led to a draw on stocks for power generation.

Kick-starting the rebound was a sale in late July to a Japanese power utility, a minor spot player, that was concluded slightly below the mid-$11s/MMBtu mark for October delivery.

While spot trading has been thin since, a recent sell tender from Australia’s North West Shelf LNG project attracted a large amount of interest, particularly for cargoes offered for later in the year. The project awarded six cargoes for loading over August 31-September 9, September 22-30, October 21-29, and November 22-30, market sources said. The price of DES cargoes loading in August and September was heard to be around $11.50/MMBtu and that in October at around $12.50/MMBtu. The November cargoes were said to have been awarded at more than $13.50/MMBtu on an FOB basis, equating to a DES Japan price of above $15/MMBtu.

The winners of the tender were said to be portfolio sellers, who had outbid end-users in order to optimize the arbitrage between the Asia Pacific and Atlantic basins later in the year.
“The NWS tender results are a reflection of what portfolio players think of the market,” a Japanese trader explained. “The market seems to be bottoming out, rebounding and gaining momentum.”

With sentiment now shifting in favor of the sellers, the few left holding cargoes for September had withdrawn offers in order to better gage the direction of the market following the results of the latest NWS tender.

Spot trade is expected to remain stagnant until the results of Thailand’s PTT buy tender are announced later this week. The state-owned buyer had sought one DES cargo delivered over September 25-October 5. The tender closes at 5 pm local time (1000 GMT)August 12, with offers to remain valid until August 14. “PTT will be the next price point,” a Singapore-based trader said. “There is a slightly more bullish tone this week in the market.”

Further fueling the sentiment was news that the ExxonMobil-lead Papua New Guinea LNG project had removed its deferment option on cargoes loaded from Train 1. The deferment option had seen ExxonMobil offer cargoes priced $0.50-1/MMBtu below the spot price in recent months. The deferment option had also effectively restricted potential offtakers to buyers with flexibility in their receiving schedules to take cargoes in later months. This had limited trader and portfolio seller involvement, reducing competition for the volumes.

“Buyers will have to take now or pay more later,” a Singapore-based trader said.

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